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Save 15% and Done?

Some research suggests 15% of your salary is an ideal saving rate. That rate includes any employer match you get. Following such a rule of thumb has virtues:

It's simple and straightforward: 15% minus your employer match = what you should be saving.

It gives you a benchmark to compare yourself against and to aim for.

But what if you're a public sector worker who is scheduled to receive a defined benefit pension? Articles in the media about personal finances are usually geared to private sector workers and assume you won't get one. In that case, that 15% rule of thumb may not be very applicable. How do you factor in contributions you may have to make to the pension? And the 15% rule assumes you're going to retire at around age 65, but many public sector workers retire earlier. And then suddenly it's complicated.

So what do you do?

First, you should understand how your pension works. Your employer's benefits office should be a helpful resource. Find out:

What exactly are the eligibility requirements and early retirement provisions?

How exactly is your benefit calculated?

Then ask yourself: how likely is it that you will work long enough to “vest” and earn that pension?

Next, add your projected yearly pension and Social Security benefits together (not all public sector workers are covered by Social Security, although they may qualify for spousal benefits) and compare that to your expected annual expenses. Now you can begin to hone in on how much you need to save to bridge any gap.

Ultimately, while rules of thumb are helpful starting points, you need to customize them to you. That applies even if you won't get a pension; for example, a late-career worker who is behind on saving would likely need to contribute much more than 15% while a younger worker just starting out might be fine with a lower 5-10% saving rate.

The good news: if you own an ICMA-RC retirement account, you have a number of options that take into account your specific circumstances: